Correlation Between Blue Sail and Huadong Medicine

Can any of the company-specific risk be diversified away by investing in both Blue Sail and Huadong Medicine at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Blue Sail and Huadong Medicine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Blue Sail Medical and Huadong Medicine Co, you can compare the effects of market volatilities on Blue Sail and Huadong Medicine and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Blue Sail with a short position of Huadong Medicine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Sail and Huadong Medicine.

Diversification Opportunities for Blue Sail and Huadong Medicine

0.82

Correlation Coefficient

Blue Sail  Huadong Medicine

Very poor diversification

The 3 months correlation between Blue and Huadong is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Blue Sail Medical and Huadong Medicine Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huadong Medicine and Blue Sail is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Blue Sail Medical are associated (or correlated) with Huadong Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huadong Medicine has no effect on the direction of Blue Sail i.e., Blue Sail and Huadong Medicine go up and down completely randomly.

Pair Corralation between Blue Sail and Huadong Medicine

Assuming the 90 days trading horizon Blue Sail Medical is expected to under-perform the Huadong Medicine. But the stock apears to be less risky and, when comparing its historical volatility, Blue Sail Medical is 1.11 times less risky than Huadong Medicine. The stock trades about -0.6 of its potential returns per unit of risk. The Huadong Medicine Co is currently generating about -0.33 of returns per unit of risk over similar time horizon. If you would invest  3,707  in Huadong Medicine Co on October 12, 2024 and sell it today you would lose (444.00) from holding Huadong Medicine Co or give up 11.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Blue Sail Medical  vs.  Huadong Medicine Co

Blue Sail Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blue Sail Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Blue Sail is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Huadong Medicine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huadong Medicine Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Huadong Medicine is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Blue Sail and Huadong Medicine

The main advantage of trading using opposite Blue Sail and Huadong Medicine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Sail position performs unexpectedly, Huadong Medicine can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Huadong Medicine will offset losses from the drop in Huadong Medicine's long position.

The idea behind Blue Sail Medical and Huadong Medicine Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.